European shares end down as insurers slide

European stocks fell for the second day yesterday, led by sharp losses in insurers after a US lawsuit alleged manipulation in the troubled sector, but a rise on Wall Street helped limit the downside for the market.

Munich Re and Zurich Financial packed the list of losers and lost 4.4 and 4.2 per cent respectively after New York Attorney General Eliot Spitzer's probe raised the spectre of a financial scandal.

US shares gained after a higher-than-expected increase in September retail sales overshadowed falls in insurance shares.

The FTSE Euro First 300 index of pan-European blue chips lost 0.26 per cent to end at 994.7 points, finishing the week 1.5 per cent weaker.

"The insurance sector has been a magnet of bad news, and this is yet another blow for market sentiment," said Peter Jarvis, European fund manager at F&C Asset Management in London, who has an underweight rating on the sector.

Stock markets have failed to extend gains since hitting five-month highs last week as a surge in oil prices to near $55 a barrel and caution over corporate earnings caps sentiment.

Among stock movers, Finnish mobile phone handset giant Nokia rallied 2.5 per cent to €11.8 after forecasting strong fourth-quarter sales on Thursday.

"There is a sense that Nokia is coming off the ropes, and we have added six per cent to our 2005 earnings per share," Ian MacLeod, telecom analyst at Jefferies International said in a note, while raising Nokia's price target to €12 from €11.

The DJ Euro Stoxx 50 index eased 0.1 per cent to 2,773.4 points.

The focus will be on the earnings season next week, with Europe's biggest software maker SAP, chipmaker STMicroelectronics and drug giants AstraZeneca and Swiss Novartis due to report results.

"We are overweight on software stocks such as SAP and see that their clients are beginning to increase their capital expenditure plans," said F&C's Jarvis, who handles about one billion pounds in investments.

Around Europe, London's FTSE 100 eased 0.14 per cent, Frankfurt's DAX lost 0.47 per cent but Paris's CAC-40 rose 0.16 per cent. Zurich's SMI, which contains a number of leading insurers, fell 0.74 per cent.

Investors digested key US economic data that painted a mixed picture and underscored how record high crude oil prices have unsettled consumers.

A jump in auto sales led to a stronger-than-expected 1.5 per cent rise in US retail sales in September, while core wholesale prices in the same month were also stronger-than-expected, raising hopes the economy was growing.

However, the University of Michigan's index of consumer sentiment sank to 87.5 from 94 in September, a much steeper fall than expected.

"It is mainly due to the oil price shock that this has come in much weaker," said Lorenzo Codogno, economist at Bank of America in London.

"At the same time, retail sales have been strong, so it will probably take a few more months before high oil prices lead to a slowdown in spending," Mr Codogno added.

Business conditions in New York state worsened sharply, while industrial production in September came in weaker than forecast.

In New York, the blue-chip Dow Jones industrial average was up 0.41 per cent at 9,935.0 points, while the Nasdaq Composite Index rose 0.4 per cent to 1,910.3 points.

The insurance sector, Europe's fourth-biggest loser so far this year, tumbled 1.8 per cent after Spitzer sued Marsh & McLennan, the world's No. 1 insurance broker, for steering unsuspecting clients to certain insurers in exchange for lucrative pay-offs.

The lawsuit, which says the manipulation has occurred since the late 1990s, implicated a number of US insurers as well as Munich-American Risk Partners, part of Germany's Munich Re.

Traders said there was concern among investors that other big European names could be involved.

Elsewhere, Hennes & Mauritz lost 3.3 per cent to 204 crowns after the Swedish fashion retailer reported a 10-per cent rise in its September sales, missing expectations.